A medical practice is the one category in this market where the constraint on price is not financing or earnings. It is who is legally permitted to buy it.
Tennessee restricts ownership of a medical practice to licensed physicians, and that single rule removes most of the buyer types who compete for other businesses in this range. Understanding it early is the difference between a well-run process and eighteen months of false starts.
Who Can Actually Buy Your Practice in Tennessee
Tennessee enforces the corporate practice of medicine doctrine, both in statute at Tenn. Code Ann. § 68-11-205 and at common law. The clinical entity is organized as a professional corporation or a professional limited liability company formed to practice medicine, and ownership is generally limited to licensed physicians.
The exception is narrow. A physician assistant may form and own shares in a medical professional corporation, but only in combination with licensed physicians or osteopathic physicians, and that is excluded for radiology, pathology and anesthesiology. Nurse practitioners, advanced practice nurses, registered nurses and licensed practical nurses cannot own an entity providing medical services. The Board of Medical Examiners screens for violations during licensure and renewal, reviews professional entity formation, and pursues disciplinary proceedings where it finds them.
The practical effect on your sale is straightforward. The individual buyer with a business background who would compete hard for a $3M HVAC company cannot buy your practice. Your buyer pool is:
• An individual physician or physician group buying the practice directly.
• A hospital system acquiring the practice and employing you and your physicians.
• A physician-owned regional group expanding into the market.
• A management services organization, where the clinical entity stays physician-owned and a separate company provides administrative services under a management agreement. These structures are common and they require careful legal work in a state that enforces the doctrine, so this is your attorney’s domain from the first conversation.
The Institutional Buyers in This Market
Chattanooga has two large health systems and they are the most consequential potential acquirers for most practices here. Erlanger runs close to 6,000 employees. CommonSpirit’s Memorial Hospital runs about 3,700. Between them they are two of the four largest employers in the metro.
Selling to a system is a different transaction from selling to a physician. The price mechanics change, employment terms become a substantial part of the consideration, and the negotiation covers compensation, call coverage, productivity targets and the length of your commitment as much as it covers a purchase price. Neither route is automatically better. They suit different sellers, and the choice should be made before the process starts. Discovering it halfway through costs months.
Payer Concentration Is Sharper Here
BlueCross BlueShield of Tennessee is headquartered in Chattanooga and employs about 4,100 people in the metro. For a practice here that means a payer mix weighted more heavily toward one carrier than it would be in most markets.
A buyer will examine this closely and you should be ready for it:
• Revenue by payer over three years, with the percentage from each.
• Contracted rates, and whether your agreements are assignable or require renegotiation on a change of ownership. This is a live valuation issue, because a buyer inheriting your rates and a buyer renegotiating from scratch are buying different practices.
• Credentialing timelines. A physician buyer has to be credentialed with each payer, and that takes months. It belongs in the closing timeline explicitly.
• Accounts receivable aging and the collection rate against billings.
Certificate of Need, and the Trap Inside It
If your practice operates ancillary services such as imaging or an ambulatory surgery component, Tennessee’s certificate of need program may apply. The program has been narrowed repeatedly since the 2021 reform legislation, with exemptions phased in on specific dates for specific services, and further changes passed in 2024. Which services still require a certificate depends on the service and the current year, so it has to be checked against the current year.
The item that catches sellers is a different one. Under Tenn. Code Ann. § 68-11-1618, a certificate of need is not transferable. If part of what makes your practice valuable depends on a certificate, the buyer does not simply receive it with the assets, and that has to be worked through with health care counsel before the practice is marketed, not during diligence.
What a Practice Is Worth
Practices are valued on earnings the same as any other business, with the physician’s compensation normalized to market so the buyer can see what the practice produces above the cost of the labor. What moves the number:
• How much of the revenue follows you personally. A practice where patients are loyal to a departing physician transfers less value than one where they are loyal to the practice. This is the largest single factor.
• Associate physicians and mid-levels who stay. Continuity of providers is continuity of revenue.
• Ancillary revenue. Imaging, lab, physical therapy and dispensing lift margin, subject to the regulatory questions above.
• The payer contracts and whether they survive the transaction.
• The real estate. Many practices here own their building through a separate entity. That is usually the right structure and it makes the transaction two negotiations instead of one.
• Clean books and a clean compliance history. Billing irregularities are a category of risk buyers price severely, and reasonably.
The Diligence a Practice Buyer Runs
Practice diligence covers everything an ordinary business diligence covers and then adds a regulatory layer that has no equivalent elsewhere:
• Billing and coding review. A sample of charts against what was billed. This is the single most common source of a repriced or abandoned practice transaction, and it is the reason a clean compliance record is worth real money.
• Payer contracts and rates, including whether each is assignable and what a change of ownership triggers.
• Credentialing status of every provider, and the timeline to credential a new one.
• Malpractice history and tail coverage. Who buys the tail policy is a negotiated point with a real dollar value, and it gets missed in letters of intent regularly.
• Provider agreements and restrictive covenants. If your associates can leave and practice across the street, the buyer is purchasing less than they think.
• Referral relationships. Where they come from, whether they are documented, and whether they survive you. For specialty practices this is frequently most of the value.
• Equipment and its service contracts, particularly imaging, where a single machine can be a large share of the asset value.
What the Practice Looks Like Without You
This is the question the whole valuation turns on and it deserves its own answer.
A practice where patients book with the practice, are seen by whichever provider is available, and return because of location and service is transferable. A practice where patients book with you specifically, wait for your schedule, and would follow you to another building is much less so. Most practices are somewhere between, and the position matters more than any multiple.
The measurable version of the question is what share of visits and collections is attributable to each provider, and what has happened to patient retention when a provider has left previously. If you have that data, produce it. If you do not, a buyer will assume the worse answer.
Where Practices Sit in This Metro
Medical real estate clusters in a few places and the location genuinely affects the patient base you are selling. The hospital campuses anchor the downtown and Northshore corridors. The Gunbarrel Road and East Brainerd corridor carries a large share of suburban primary care, dental and specialty practices, following the retail and residential growth on that side of the county. Hixson and North River to the north and Ooltewah and Collegedale to the east are where residential development has run ahead of the healthcare capacity to serve it, which is why practices in those corridors frequently have a documented growth story. Across the line, Fort Oglethorpe and Ringgold serve a North Georgia patient base that also uses Chattanooga hospitals.
Staffing Is a Valuation Input Here
Healthcare is one of the largest employment sectors in this metro and that cuts both ways for a seller. Erlanger, CommonSpirit’s Memorial Hospital and BlueCross BlueShield of Tennessee together employ well over 13,000 people, which means clinical and administrative staff have options, and a practice competing for medical assistants, front office staff and billers is competing against institutions that pay on published scales.
A buyer will look at your turnover, your compensation against market and how long your key people have been in place. A practice with a stable clinical team and a billing manager who understands your payer mix transfers cleanly. One that has replaced its front office twice in two years does not, and the buyer prices in the cost of rebuilding it.
This is worth addressing in the year before a sale for the same reason the provider question is. Staffing stability is visible in the numbers a buyer receives, and it is one of the few things you can genuinely improve on a twelve-month horizon.
The Georgia Side Changes the Tax Answer
Three of the six counties in this metro are in Georgia. If your practice or your building sits in Catoosa, Dade or Walker County, the tax outcome differs.
Tennessee has no state personal income tax; the Hall tax on interest and dividends was repealed for tax years beginning January 1, 2021. Tennessee taxes at the entity level instead: excise at 6.5% of net earnings, which starts from federal taxable income and so captures gain on an asset sale, and franchise at 0.25% of net worth with a $100 minimum. Corporations, LLCs, limited partnerships and business trusts are subject; general partnerships and sole proprietorships are not. A Georgia practice owner pays Georgia’s flat individual rate on the gain, 4.99% for 2026.
Which is better depends on entity, basis and the allocation of purchase price across equipment, goodwill, the non-compete and any real property. All of it is negotiable and all of it should be modeled with your CPA before you agree to a price.
What to Do in the Two Years Before You Exit
Practices need a longer runway than most businesses, because provider recruitment and patient transition both take time.
• Reduce the share of revenue that follows you personally. Bring in an associate, shift patients deliberately, and give the transition long enough to be visible in the numbers.
• Confirm whether your payer contracts are assignable, and what a change of ownership triggers.
• Resolve any certificate of need question with health care counsel, given that a certificate does not transfer.
• Clean the billing and compliance record, and be able to document it.
• Decide the real estate, since a practice sale and a building sale are separate negotiations that have to be sequenced.
• Decide early whether you want a physician buyer or a system, because the two processes look almost nothing alike.
Thinking About Selling Your Practice?
The buyer pool for a Tennessee medical practice is narrower than for any other business in this range, which makes reaching all of it the entire job. Devon Griger is admitted to the bar in Georgia and Tennessee, and on a practice transaction the legal work starts earlier than it does anywhere else.
Schedule a confidential consultation → https://calendly.com/nolan-nolanscottteam
Or call me directly at 404-247-5880. Every conversation is completely confidential.